Henkel: Shares Down 25% Since June, Low-Teens Annualized Returns On Forecasts

(Preview) Company Update (HEN3 GR) (Buy)

Summary

• Henkel's Preferred Stock has fallen 25% since June and is now just 9% above its 5-year low in March 2020. The Dividend Yield is 2.6%.

• Q3 results were mixed due to COVID-related demand volatility and cost inflation, and 2021 outlook was cut to the low end of the prior range.

• Adhesives Technologies again showed strong growth, Laundry & Home Care had a solid performance, but Beauty Care sales fell.

• While we still believe Henkel's turnaround will succeed, we are reducing our EPS growth and P/E assumptions to reflect more uncertainty.

• With shares at €70.74, we expect a total return of 44% (13.0% annualized) by 2024 year-end, in just over three years. Buy.

Introduction

We review Henkel AG & Co. KGaA after its shares fell to new lows following the discovery of the new Omicron variant of COVID-19 last week. At Thursday's (December 2) closing price of €70.74, Henkel's Preferred Stock was just 9% above its 5-year low of €64.94 in March 2020.

We initiated our coverage on Henkel with a Buy rating…